Financial Development and Financial Crises: Lessons from the Early United States

The financial history of the United States is unique in that it includes multiple experiments with currency and banking systems that were accompanied by the rapid emergence of financial markets. This history is also reasonably well documented, and includes relatively frequent disruptions in the form of financial crises. More importantly, the U.S. experience from the colonial period through World War I holds lessons for understanding the interrelated roles of financial development, globalization, and financial crises in economic growth and stability, and these lessons are not entirely remote from the global events of 2007–2009. This chapter highlights some of these lessons through a financial historiography of the period that emphasizes the key role of central banks in economic stability, the dangers of allowing political expediency to drive economic outcomes, and the pitfalls of allowing either to gain excessive influence over financial and monetary policies.